World Economy

World Bank Warns Pakistan of Growing Macroeconomic Imbalances

World Bank Warns Pakistan of Growing Macroeconomic ImbalancesWorld Bank Warns Pakistan of Growing Macroeconomic Imbalances

The World Bank has warned that the Pakistan government’s growth story is now at risk given the scale of the macroeconomic imbalances growing within it.

All through last year as the chorus of voices warning about these imbalances got louder, the World Bank largely maintained a studied silence. But with the issuance of its half-yearly Pakistan Development Update, that silence has been broken and another powerful institutional voice has entered the conversation around the outlook on the economy, APP reported.

In its warning, the bank follows the same template that the IMF and the State Bank do. The real sector is indeed growing, it says, with the growth rate for the economy set to come in at 5.5% for this year, and climbing to 5.8% next year.

This, of course, assumes that “political and security risks will be managed” the report adds in a nod towards the escalating difficulties of former prime minister Nawaz Sharif.

But the growth rate is now haunted by the difficulties of the external sector. “Pakistan will need to continue with economic reforms and pursue policies that make the country compete better in global markets,” the bank’s president said during the launch of the report.

Some of the measures taken by the government to try and compress the trade deficit, such as the increasing resort to regulatory duties, are the wrong road to take, the president cautioned during the event. The growth rate going forward will be heavily driven by spending—personal as well as government—and that spending, in turn, will be driven by rising remittances and election-related expenditures.

But the current account deficit, that jumped by 112% year on year in the first quarter of the fiscal will rise to 4% of GDP by the end of the year. This would be slightly below what it was at the end of the last fiscal year but still at an unsustainable high level given the relative paucity of foreign exchange inflows.

Election spending could boost the growth rate of the economy, even if temporarily, but the fiscal deficit could jump to 6% of GDP in the process. This would mean rising levels of debt to pay for the gap. Timely corrective steps are required, the report warns, to avert an abrupt slowdown. But the longer these steps are delayed, the harder it will be to say what exactly they should entail.

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